CIMB THB Weekly Fixed Income Commentary for 19 June 2015

Market Roundup

• Thailand’s government bonds rallied, especially boosted by strength along the US Treasuries market after the US Federal Reserve held the Fed Funds Rate at its FOMC meeting last Thursday. Yields along medium tenor bonds with around 10 years maturity were spotted about 5bps lower right after the FOMC meeting, and for the week ended down 14bps to close at 2.93%. Meantime, IRS rates were seen 27bps lower for the short tenors but longer tenors (>10 year) fell by 10-13bps. At the same time, the baht was firm near 33.612 late Thursday against 33.701 a day before and closed the week at 33.683. However, for the whole of last week, foreign investors were net sellers of Bt2.9 billion of Thai baht bonds; meaning much of the support came from domestic players.
• Last week’s gains reversed the prior week’s losses, when net selling activities dominated trading after BoT held the policy rate unchanged at 1.50%. Still, we think BoT kept its policy stance accommodative to support growth. The central bank stated that the slow-growing economy is exposed to downside risk from slower‐than‐expected global economy recovery. In addition, policymakers projected headline inflation to be in negative territory, dragged by lower energy and raw food prices, but anticipate inflation to show upticks in the second half of the year. In any case, we think there remains good chance BoT will continue to cut rates before the end of the year, with our economists eyeing possible level of 1.00% in the policy rate by end-2015.
• In the short term period, we expect mild support to continue and see strong resistance for the 10-year Thai govvies at 3.20%.
• Lastly, corporate bond trading was heavier, totaling about Bt13.0 billion the whole week. However, there was no widespread net buying interest despite the gains along the govvies segment. The net buying interest were slanted towards single-A rated papers with less than three-years maturity.